Welcome, Fools, to part 22 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.
Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?
|
FMI Large Cap (FMIHX) | |
|---|---|
|
Expense ratio |
1.00% |
|
Fund size |
$164.5 million in assets |
|
1-year return |
14.82% |
|
5-year return |
N/A |
|
10-year return |
N/A |
Top 5 holdings
|
Company |
% of Assets |
|---|---|
|
Berkshire Hathaway (NYSE:BRKb) |
7.6% |
|
Canon (NYSE:CAJ) |
6.1% |
|
Wal-Mart |
6.1% |
|
Time Warner (NYSE:TWX) |
5.7% |
|
Accenture |
5.4% |
Meet Ted Kellner and Patrick English
The fightin' team at FMI Large Cap is led by Ted Kellner and Patrick English, who together launched the fund in 2001. They've pummeled the S&P 500's average return by roughly 5% a year since.
Call it a benefit of being far removed from the Street's investapo. Fund advisor Fiduciary Management, or FMI, which Kellner founded with Don Wilson in 1980, is based in Milwaukee, Wisc. It's also Kellner's hometown, and he has a degree from the University of Wisconsin and has been known to give guest lectures at the campus.
English, a 20-year veteran of the firm, isn't as seasoned as Kellner, though he sports an impressive pedigree. English is an alumnus of Stanford University and San Francisco-based Dodge & Cox, which has produced the top performer for Shannon Zimmerman's Motley Fool Championship Funds portfolio. Is it any wonder English is now FMI's head of equity research?
How they invest
Of course not. While the Wall Street hamster wheel focuses on plain vanilla earnings, English told the Wall Street Transcript last year that he, Kellner, and FMI's researchers spend most of their time evaluating prospects based on their return on invested capital (ROIC), which seeks to measure the effectiveness of management in using debt and equity to boost growth:
"Our main focus for the portfolio investments is ROIC. We're looking for companies that can generate a positive spread over their cost of capital over a three- to five-year time horizon."
Research says that's smart. Increases in ROIC most directly correlate with higher stock returns.
But, of course, there's more to FMI Large Cap than just playing the numbers game correctly. Kellner and English say that they closely evaluate management to ensure that it's an excellent steward of shareholders' cash. Kellner's particular interest is acquisitions, which he views with a high degree of skepticism. As he told the Transcript:
"Often they [acquisitions] are done at prices that impair ROIC, even though they may be accretive to the company's EPS."
Color me all the more impressed, then, that FMI Large Cap has managed to generate big returns from serial acquirers such as Tyco and Berkshire Hathaway, whose stock is up nearly 19% year to date.
Is this fund for you?
So, can Kellner and English deliver like Peter Lynch? Their scrounge-for-value approach has certainly worked well for top-notch stock pickers such as Bill Miller. Plus, like Bill Nygren of Oakmark, both Kellner and English say the majority of their investing net worth is tied into FMI's mutual funds. That's exceedingly Foolish.
What's more, the fund sports a championship-caliber expense ratio of just 1.00%. I'll take that any day, if I can get the performance FMI Large Cap has delivered over its brief history. And yet Shannon hasn't yet seen fit to add the fund to his portfolio. I may find that somewhat mystifying, but it's hard to argue with him; Shannon's picks have outdistanced their relative benchmarks by more than 8% as of this writing. ( Try the service free for 30 days to get a peek at the entire portfolio of Champs.)
And that's this week's profile. See you back here next week, fund nation. Good night.
Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman's Motley Fool Champion Funds portfolio are up an average of 24% vs. just 16% for their comparable benchmarks. Ask us for an all-access pass to get an unfettered look at all of Shannon's picks, manager interviews, and model portfolios. Go ahead; it's free for 30 days and there's no obligation to buy.
Fool contributor Tim Beyers is a regular viewer of The Colbert Report. (Stay the course.) Tim owns shares of Berkshire Hathaway, which, like Accenture and Wal-Mart, is a Motley Fool Inside Value pick. Time Warner is a Stock Advisor recommendation. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. The Motley Fool's disclosure policy is always championship-caliber.
